Why is America's healthcare spending so inefficient?

America currently devotes over 17 per cent of its GDP to spending on health.

Compared with:

11 per cent in France and Germany

10 per cent in Canada

and 8 per cent in Japan and UK.

The US spends almost fifty per cent more per person on health than the next highest spending country.

This high spending does not appear to buy better health outcomes than in other countries.

Samuel Preston and Jessica Ho explore this in their paper Low Life Expectancy in the United States: Is the Health Care system at Fault? NEBR Working paper 15213.

US life expectancy lags behind that in other advanced economies.

Life expectancy at 50 is 3.3 years lower than Japan and 1.5 years lower than in Australia, Canada, France, Italy, Iceland, Spain and Switzerland.

They point out that the association of disappointing outcomes and high spending should be treated with caution, given that health outcomes depend on a much wider range of personal behavioural issues such as diet exercise smoking and so on.

They look on two diseases cancer and cardiovascular disease. What they establish is that these diseases are more aggressively tested for and treated in the US than in Europe. And there are better outcomes that follow from those aggressive interventions in terms of patient survival prospects. Reduction in mortality from prostate and breast cancer have been exceptionally rapid in the US compared to other comparable societies. They conclude that the system works well to reduce mortality from important causes of death such as cancer, but that it is ‘possible that the US health care system performs poorly in preventing disease in the first place’.

They also recognise that there could be great inefficiencies in the system resulting from misallocation of physician and patient incentives and the practice of defensive medicine.